Limitations or Disadvantages of Sole Trader Business

1. Limited capital: Use of limited capital means limited profits only. If there is any necessity to expand business there may not be sufficient resources.

2. Limited skill: As there is only one man the managerial ability is limited.

3. Limited borrowing capacity: The borrowing capacity of a sole trader is limited to the extent of his financial position.

4. Unlimited liability: The creditors can recover their loan amount not only from the properties of the business but also from his personal properties. So his liability is unlimited.

5. Hasty decisions: The sole trader takes all decisions for himself. So there may be hasty and thoughtless decisions.

6. Short life: If the sole trader does not have children, or if his children are not interested in continuing the business, the business would come to an end. There is no guarantee of continuous existence in this type of business.

7. No division of labor: As it is a small unit, it is not possible to introduce division of labour in the management.

8. Dependence on employees: If there is expansion of business, it is inevitable for the proprietor to depend on the paid managers.

9. Limited area of operation: The business is small. So the activities cannot go beyond a certain area.

10. Lack of large scale economies: Sole trader’s business is small scale only. He cannot do his business on large scale due to lack of financial resources. So he cannot enjoy large scale economies of production, buying or selling.

Suitability of sole trading concern

A sole trading concern may carry its business successfully under the following circumstances.

1. Where business is carried on small scale;

2. Where capital requirement is less;

3. Where prompt and quick decisions are required;

4. Where risk is less;

5. Where personal element plays an important role;

6. Where market is local;

7. Where secrecy in business is a must;

8. Where freedom of the businessman is involved;

9. Where business is seasonal;

10. Where there is no need for specialization.

In spite of all the limitations, a sole trading concern is a popular form of organization in all parts of the world. Thus, we can say that it has its own place in the field of business even today. Its future is bright.